Post-employment Benefits (including Pensions)

Discount rate for Employee Benefits

Discount rate for employee benefits (Stopped)

In October 2009 the Board decided to adhere to its original plan to address measurement issues only in the context of a fundamental review. As a result, it decided not to proceed with the project at this point.

IAS 19 requires an entity to determine the rate used to discount employee benefits by reference to market yields on high quality corporate bonds at the end of the reporting period. However, when there is no deep market in such bonds, IAS 19 requires an entity to use market yields on government bonds instead.

Some comment letters to the Discussion Paper Preliminary Views on Amendments to IAS 19 as well as additional feedback received in discussions with the IASB's Employee Benefits Working Group, the Pensions and Employee Benefits Committee of the International Actuarial Association and other interested parties indicated that this requirement means that entities with similar employee benefit obligations can report them at very different amounts. This effect has been much greater as a result of the global financial crisis because of the significant widening of the spread between yields on corporate bonds and yields on government bonds. The comments received also suggested that the issue could be resolved without pre-empting the IASB's plans for a more fundamental review of accounting for employee benefits.

The Board concluded that there would be benefit in improving the comparability of financial statements across entities and through time for the same entity in the current circumstances, and in August 2009 published the exposure draft Discount Rate for Employee Benefits aimed at addressing the issue expeditiously. The comment period closed on 30 September 2009.

What did the Board propose?

The ED proposed to remove the requirement to use a government bond rate when there is no deep market in high quality corporate bonds. Instead, an entity would be required to estimate the rate for a high quality corporate bond using the guidance on determining fair value in IAS 39. Entities would apply the proposed amendment prospectively from the end of the accounting period in which the amendment is adopted, with any adjustment arising from the change in accounting policy going direct to retained earnings.

Outcome

In October 2009, the Board considered the responses to the ED. Those responses indicated that the proposed amendment raised more complex issues than had been expected. The Board therefore decided to adhere to its original plan to address measurement issues only in the context of a fundamental review. Thus, the Board decided not to proceed with the amendment. This means that entities will still need to refer to a government bond rate when there is no deep market in high-quality corporate bonds.

Related information

Read a staff overview of the proposals and how they fit within the larger project on pensions accounting.